Category: validity of separation agreements

The Supreme Court of Canada returned to domestic contracts and their enforceability in the case of Rick v. Brandsema, 2009 SCC 10 (Can LII). The Court once again considered the competing policy goals of:

promoting “finality” and respecting the rights of separating spouses to enter into agreements that will be enforced by the courts; and

recognizing the unique and vulnerable circumstances that separating spouses find themselves in when negotiating Separation Agreements.

The Court sought to balance these interests in its decision. There’s really nothing new here in terms of law. The Court simply reaffirmed the principles set out in its decision in Miglin v. Miglin, 2003 SCCC 24 (CanLII).

The Court’s message was this:

If you want your agreement to be respected and upheld by the courts, don’t use exploitative tactics such as failing to fully and honestly disclose finances and don’t take advantage of the other party’s vulnerabilities in the bargaining process.

If you do so, and the agreement fails to meet the objectives of the governing legislation, the agreement may set aside and remedied by the court.

A ‘hard bargain’ imposed on a vulnerable spouse is not good for either party if it results in a protracted and expensive court dispute about whether the agreement is valid and enforceable.

In the Rick case, the SCC overturned the British Columbia Court of Appeal and affirmed the trial judge’s decision to award the wife “equitable compensation” of $650,000.00.

At trial, the judge found that the husband had deliberately breached his duty to fully and honestly disclose his assets during the negotiation of the separation agreement. The trial judge also found that the husband had exploited his wife’s “profound mental instability” in the negotiation process.

As a result of the husband’s exploitative conduct, the trial judge found the wife received almost $650,000.00 less than her entitlement under B.C.’s Family Relations Act. In the circumstances of the case, the trial judge found the separation agreement to be unconscionable and ordered the husband to pay to the wife “equitable compensation” representing the difference between the “equalization payment” she received under the unconscionable agreement and her entitlement under B.C.’s Family Relations Act.

The B.C. Court of Appeal had reversed the trial judge’s findings and upheld the separation agreement. The appeal court found that the wife had failed to use the professional advice (her lawyers) that was available to her, through no fault of the husband. The appeal court noted that the husband was under no obligation to act contrary to his own best interests. The appeal court relied on the SCC decision in Miglin v. Miglin, 2003 SCCC 24 (CanLII) and held that the wife’s vulnerabilities were presumptively compensated for by the professional assistance available to her.

The Court of Appeal also discounted the trial judge’s findings about the wife’s mental health vulnerabilities, and made its own finding that although the wife was “troubled” , she was not mentally incapable, and had not entered the agreement under duress.

The SCC said the BC Court of Appeal was wrong in its reading of Miglin. The court said it was up to the trial judge to make a finding that the wife’s vulnerabilities were, in fact, not compensated for by the presence of legal counsel. Her mental instability, together with the husband’s breach of his obligation to make full and honest financial disclosure, as well as the agreement’s substantial non-compliance with the legislative objectives, made the agreement unconscionable.

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